Bottom of the screen not working?

My 2G iTouch just out of the blue stopped recording touches at the bottom part of the screen. I would say about 1.5 inches from the bottom. It does not work at all. Not only for apps or games, it won't work in springboard either. Is this a software issue, or did that part of my screen crap out?

Can I "pawn" it again? *new Firmware*, or that won't fix anything?

I still have a warranty on it. I can restore it to OFW, and return it, get a new one. Is that what I should do?

Alright, so I was just playing around with it, and the screen started working. So I was playing taptap, and it stopped working again, but this time, the screen froze completly. I locked it, and unlocked it, and it started to work.

Few seconds later, the "touch" was stuck, I wasn't doing anything, but it was acting as if I was holding down an icon *they started shaking, as if I were moving them* I pressed the home button, and a few seconds later, they started to shake again.... >.>'

Do I have a faulty screen?

The iTouch has no damage at all. I JUST got it *less than 48 hours ago* It has no scratches on the screen, or anywhere else.